Friday, October 3, 2008

Tribune keeping ahead of massive debt load

By Ameet Sachdev Chicago Tribune reporter
October 3, 2008

Investors that made big bets on newspapers in recent years are struggling with their balance sheets as advertising revenues continue to fall.In recent days, Avista Capital Partners, a New York private-equity firm that paid $530 million for the Star Tribune in Minneapolis last year, said the paper has stopped making debt payments. Creative Loafing Inc., a Tampa-based alternative newspaper chain that bought the Chicago Reader in 2007, filed a Chapter 11 bankruptcy petition.

Newspaper publisher McClatchy Co., which acquired Knight Ridder in 2006, avoided potential default by renegotiating its agreement with lenders.

The situation, for the moment, is not so dire at Chicago-based Tribune Co., debt analysts said. The financial turmoil has led to a spike in short-term interest rates that could pressure the company's cash flow, but it has more financial flexibility than some of its media brethren."Tribune has some breathing room," said Dave Novosel, an analyst at Gimme Credit, a Chicago-based bond research house. "There's nothing imminent that would necessitate a renegotiation of [lending] terms."

The diversified media company, which owns the Chicago Tribune, went private in December in an $8.2 billion buyout led by Chicago real estate billionaire Sam Zell that increased its debt to almost $14 billion.

At the end of the second quarter, Tribune Co.'s debt was $12.5 billion after asset sales, including control of Newsday in Long Island. But confidence is shaky over whether Tribune Co. will be able to repay debt long term. Its debt is rated at non-investment, or junk, and some loans trade at about 50 cents on the dollar.

Rising interest rates could cost the company nearly $100 million more annually, according to analysts, putting more pressure on the company to sell the Chicago Cubs by the end of 2008 or early next year. Debt analysts and investors are counting on Tribune Co. to execute that deal in that time frame because of a looming debt payment of nearly $600 million in June, as well as tighter lending requirements in 2009. Some predict a package of the Cubs, Wrigley Field and related broadcast properties could fetch more than $1 billion. Some of the proceeds are expected to be used to pay off the June loan.

A Tribune Co. spokesman declined to comment.Without a timely sale of the Cubs, Tribune Co. would have to consider selling other assets to meet the conditions of its loans. While newspaper properties are declining in value, Tribune Co., unlike some other media companies, has other attractive assets, including broadcast stations, real estate and a stake in the Food Network cable channel.

Zell has indicated Tribune Co. is on track to pick a winning bidder in its Cubs auction by year's end. Prospective buyers include Mark Cuban, owner of the National Basketball Association's Dallas Mavericks; the Ricketts family, founder of Omaha-based online brokerage Ameritrade; Hersch Klaff, a Chicago real estate investor; and two New York private-equity investors.

Tribune has not set a deadline for the next round of bids, according to sources close to the transaction.It's too early to tell whether the credit crisis will have an impact on a Cubs deal. "Even in today's constricted environment, I'm pretty confident [Zell] can get a deal done," Novosel said.

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